Myers v Design Inc (International) Ltd.

I have before me an application by the defendant Design Inc (International) Ltd (“the Defendant”) to set aside an order obtained by the claimant Sheila Myers (“the Claimant”) suing as the personal representative of the late Cyril and Marjorie Rosenberg (“the Deceased”), that the Defendant should pay into court the debt of £900,000 which the Claimant alleges is owed to her by the Defendant. That order was made by Mr Justice Hart on the 16^th January 2003 and required payment of that sum into court by 4 p.m. on Friday the 24^th January 2003. It was made on the Claimant’s application made without notice to the Defendant. On the 23^rd January 2003 the Defendant applied informally (as permitted by the order) to set aside or vary the order. By agreement of the parties Mr Justice Hart extended time for payment until 4 p.m. today the 31^st January 2003. The effective hearing of the Defendant’s application to set aside the order came before me on the 29^th January 2003 when I reserved judgment. The short issue of law raised on this application is whether the court had jurisdiction to make such an order under CPR 25.1(1)(l) (“the Rule”) which provides that amongst the interim remedies which the court may grant the court may make:

“an order for a specified fund to be paid into court or otherwise secured where there is a dispute over a party’s right to the fund”.

This turns on the question whether the alleged debt owed by the Defendant to the Claimant constitutes a “specified fund” which the court can under the Rule order to be paid into court or otherwise secured. The Rule replaces and (in the language of Volume 1 of the Autumn 2002 White Book para 25.1.30) “is based on” RSC Order 29 r.2(3). There is apparently no authority providing guidance on the current rule or its predecessor.

The facts of this case are of very little (if any) relevance. In short the Deceased out of the proceeds of sale of a property paid the £900,000 to the Defendant by way of loan. The Defendant has long ago expended that money or at least a very substantial part of it. The Claimant has demanded repayment, and on the face of it the full sum is now immediately repayable. The Claimant commenced these proceedings for repayment. The Defendant has however raised a number of defences to the claim for repayment. Those defences may be tested on an application for summary judgment or at the trial of the action. The Claimant is concerned that, unless steps are taken to prevent it, the Defendant will take steps to render himself judgment proof. If these fears are justified, a course available to the Claimant is an application for an order freezing the Defendant’s assets, which is a remedy specifically provided for by CPR 25.1(1)(f)(ii). But instead of seeking a prohibitory order to this effect the Claimant decided to apply for a mandatory order under CPR 25.1.(i)(l) for the Defendant to pay the sum claimed into court.

An application for such relief was made without notice to Hart J on the 16^th January 2003. Hart J was plainly troubled whether the Rule admitted of the grant of the relief, but he decided on the balance of justice that he should grant such relief until a hearing on notice when the issue could be fully argued and decided. The matter has now come before me for argument and determination.

The issue raised is clearly of some practical importance. For if the Claimant is right in her contention that she is entitled to the relief which she claims, that remedy will be available to all creditors. It will achieve the same practical result as a conditional order on an application for summary judgment under CPR 24 and para 5.2 of the supplementing Practice Direction requiring payment of the sum in question into court. It may also have the incidental effect of elevating the creditor into the status of secured creditor.

Whether the Claimant is entitled to invoke CPR 25.1.(i)(l) turns on the question whether on a claim by the creditor against the debtor the debt itself constitutes a “specified fund” within the meaning of the Rule. In my judgment it clearly does not do so.

The word “fund” is not a term of art and (like so many other words) is capable of a variety of meanings depending on the context in which it is used. Two authorities have been cited to me which exemplify this fact. In Allchin v. Coulthard [1942] 2 KB 228 Lord Greene MR referred to two distinct meanings of the word. He said (at p.234):

“The word ‘fund’ may mean actual cash resources of a particular kind (e.g. money in a drawer or a bank), or it may be a mere accountancy expression used to describe a particular category which a person uses in making up his accounts. The words ‘payment out of’ when used in connection with the word ‘fund’ in its first meaning connote actual payment e.g. by taking the money out of the drawer or drawing a cheque on the bank. When used in connection with the word ‘fund’ in its second meaning they connote that, for the purposes of the account in which the fund finds a place, the payment is debited to that fund, an operation which of course has no relation to the actual method of payment or the particular cash resources out of which the payment is made… A fund in the second category is merely an accountancy category. It has a real existence in that sense, but not in the sense that a real payment can be made out of it as distinct from being debited to it.”

In the case of Shamia v. Joory [1958] 1 QB another meaning was given to the word in a different context. In that case Barry J held that in accordance with the principle stated by Blackburn J in Griffin v. Weatherby (1868) LR 3 QB 753 at 758 (“the Principle”) if a creditor wishes to make a gift of that debt to a third party and with that intention in mind instructs the debtor to pay the third party, and if the debtor subsequently promises to pay the debt to the third party, the third party may sue the debtor for the debt. For the purpose of the Principle the authorities speak of the essential need for the existence of what is referred to as “a fund” over which the transferor has a right of disposal and for this purpose a debt owed to the transferor is such a fund. In this context Barry J said:

“… there is of course no magic in the word ‘fund’; nor is it to be regarded as though it were a word used in a statute. It was clearly chosen by Blackburn J, not as a term of art, but as a word which aptly fitted the facts which were then under consideration.”

Whilst therefore in the context of the Principle the word “fund” is apt to mean or include a debt, contrary to the submissions of Mr Russen (Counsel for the Defendant) the authorities referred to lend no support to the proposition that the word “fund” has that meaning in any other, let alone the present, context.

I turn to the use of the term in the context of the Rule. The provisions of the Rule require as conditions for exercise of the jurisdiction to make the order that at the date of the order (1) the person against whom the order is to be made has legal title to or is in possession or control of an actual identifiable fund, colloquially the fund must be in his hands; (2) there is a dispute as to a party’s proprietary entitlement to or interest in the fund; (3) the circumstances are such that the fund should be secured by payment into court or in some other way. The requirement that the person against whom the order is to be made should be the legal owner or in possession or control of the specified fund is implicit in the form of relief: the mandatory order could not be made unless it could be complied with. The reference in the Rule to the party’s right to the fund connotes the existence of a proprietary right or interest in the fund.

Mr Nicholls first submits the debt in this case represented the proceeds of sale of property by the Deceased and that those proceeds constituted the necessary “specified fund”. But, as I have said, though they may have constituted such a fund on receipt by the Defendant, that fund no longer exists and further the Claimant never had any proprietary or other right in that fund.

In the alternative Mr Nicholls submits that the debt owed by the Defendant to the Claimant constituted the specified fund. This is likewise unmaintainable. Any debt owed by the Defendant to the Claimant is a chose in action vested in the Claimant. It is not itself a specified fund nor does it give rise to the existence of a specified fund in which the Claimant has a proprietary interest. Nor are there any monies (let alone a specified fund) held by the Defendant over which the Claimant has any proprietary rights.

I therefore hold that upon the true construction of the Rule the Claimant cannot invoke the Rule. It is not sufficient that the Claimant has any interest in preserving the assets of the Defendant and preventing the Defendant by disposing or dealing with his assets from making himself judgment proof. That protection can be secured by a freezing order. The Claimant’s prospects of success in this action again are beside the point, though they point to the availability of relief by way of an application for summary judgment.

Mr Russen for the Defendant put forward an independent argument why an order under the Rule is unavailable. It was to the effect that such an order would have the effect, if complied with, of making the Claimant a secured creditor in respect of the payment into court with priority over all other creditors, and this would be unjust. In support of this contention he referred to and relied on the judgment of Neuberger J in Flightline Ltd v. Edwards [2002] 1 WLR 2535. The judgment in that case goes a long way in affording successful applicants for relief the status of secured creditors in respect of payments made into court by respondents and in particular payments made in substitution for freezing orders which do not of themselves confer any proprietary interest on the applicant. I find it difficult to believe that ordinarily and unless the order expressly or impliedly otherwise provides judges making freezing orders or orders (other than on applications for final judgment) for payment into court will intend to afford such preferred status to the applicants over other creditors or would make the orders in terms which they do if they appreciated that this would or could be the consequence of their orders. But there can be no doubt in my mind that an order under the Rule does not confer any such status or preference. The Rule is designed to protect and preserve the specified fund and rights of all persons interested in the fund as they existed prior to the making of the order: that is the whole object of compliance with an order under the Rule. The order has no greater effect than the appointment by the court of a trustee or receiver of the fund pending resolution of the outstanding dispute. This further argument does not therefore assist the Defendant on the issue before me. But in any event without the need for such assistance the Defendant succeeds and the order dated the 16^th January 2003 must be set aside.